LTC Properties (NYSE: LTC) has invested almost $180 million this year, representing its most active year for transactions since 2015. And if all goes according to plan, the company won’t stop there.
Leaders with the Westlake, California-based real estate investment trust (REIT) are also focused on operator diversification a little more than a month after Brookdale Senior Living (NYSE: BKD) chose not to renew a lease on a portfolio of 35 LTC-owned properties.
During the company’s call with investors and analysts Friday, Chairman and CEO Windy Simpson noted that while the senior living industry has undergone a bumpy ride during the pandemic, she is still optimistic about the company’s road ahead given the fact that “demographics are on our side as needs-based care continues to grow and the population continues to age and live longer.”
“Although the recovery may continue to move slowly and the path to get there may not be linear, I am a firm believer that by using our collective experience, tenacity and flexibility, we can emerge stronger and more resilient,” Simpson said Friday.
LTC reported normalized funds from operations (FFO) of 62 cents, missing analysts’ expectations for the quarter by three cents. Overall, the company posted total revenue for the quarter of $49.5 million.
The company has made good progress addressing tenant issues caused by the industry’s difficult operating environment, but it is not out of the woods in that regard either, according to CMO Capital Markets Analysts Juan Sanabria and Jon Kim.
“Management is finding investment opportunities and is utilizing JVs for the acquisitions. The strong balance sheet is allowing LTC to capitalize on these opportunities, and this could offset any further tenant issues,” they wrote in an April 27 investor note.
LTC stock landed at $TK after financial markets closed Friday, representing a gain/loss of TK%.
Investment and transitions pave the way
As it has been focused in recent years, LTC management has spent the year so far in part by assisting operating partners in the REIT’s portfolio.
“It is no secret that our industry’s recovery from the pandemic has been choppy and in some cases, drawn out,” Simpson said on the company’s first-quarter earnings call with investors. “While certain operators have made progress on improving occupancy, increasing revenue and reducing costs, others remain challenged.”
Following the first quarter, LTC announced it lent a hand to three tenants in its portfolio, including allowing a senior living operator to defer $467,000 in rent in April and May to help with the transition of eight assisted living facilities to another operator.
Those communities, located in Ohio and Michigan, total about 500 units, according to Co-President and CFO, Pam Kessler.
LTC also provided up to $215,000 in rent abatements in May and June for an operator it previously had abated rent for.
Overall, occupancy trends are positive, with the company’s senior living portfolio ticking up to 80% as of March. That is up from 79% in January, but still below pre-pandemic occupancy rates of 87% in 2019.
LTC earlier this year parted ways with Brookdale (NYSE: BKD) after the two failed to agree on a lease renewal agreement for 35 properties in February.
Brookdale is obligated to pay rent through Dec. 2023, and LTC is currently in the midst of replacing that income through a combination of re-leasing and redeploying sales proceeds while diversifying its operator relationships.
“Our current plan includes selling about 50% of the properties and re-leasing the other 50%,” LTC Co-President and Chief Investment Officer said on the earnings call. “We have engaged third parties to help run the process and they are now underway.”
He added: “Although transitioning 35 properties can be challenging, we believe we have the experience necessary to complete the transition in a timely fashion and welcome the opportunity to reduce operator concentration.”
The Brookdale portfolio could impact how LTC moves forward with other dispositions that it might want to execute in the coming months, however.
“We’ve sold some today, we will probably sell a little bit more,” Malin said.
Historically, LTC likes to offload somewhere between $30 and $40 million per year, but “that could change depending on the sale and the timing of the Brookdale properties,” he noted.
In the interim, LTC is ramping up its investments in key markets with an active pipeline of about $100 million, which would put it at south of $300 million for the year –” a very strong volume,” Malin said.
“We feel very good about what we’ve been able to accomplish this year and what we have in the pipeline right now” Malin said.
Earlier this year, the REIT invested north of $128 million in a dozen assisted living communities in North Carolina, including in the Raleigh-Durham Research Triangle, the Triad, and the Charlotte metropolitan area
That flurry of investment includes an 11-property joint venture with one of LTC’s existing operators which agreed to a 10-year master lease with two five-year renewal options.
In addition to the AL portfolio purchase, LTC invested $51.1 million in a 203-unit senior living community with IL, AL, and memory care units in Georgia. That investment comes by way of an existing senior mortgage loan by refinancing existing banks.
And while the lending market has created volatility, Malin believes LTC to be a good capital partner.
“Being mindful of turbulence, we are being even more selective with respect to new investments,” he said.
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